SEI Investments Co (SEIC) 2011 Q1 法說會逐字稿

Please stand by for the realtime transcript. Ladies and gentlemen, thank you for standing by and welcome to the SEI 2011 first quarter earnings call. At this time, all phone participants are in a listen-only mode. Later there will be opportunities for your questions. (Operator instructions) As a reminder, today's conference is being recorded, and I would now like to turn the call over to Chairman and CEO of SEI, Al West. Please go ahead, sir.

Welcome, everybody. Good afternoon. All of our segment leaders are on the call, as well as Dennis McGonigle and Mark Warner. I will start by recapping the first quarter 2011, and then I will turn it over to Dennis. First, he will expand on a few financial matters and then cover LSV and the investment in new business segment. After that, each of our business segments heads will comment on the results of their segments. And finally, Mark Warner will provide you with some important company-wide statistics. As usual, we will field questions at the end of each call.

Let me start with first quarter of 2011. First quarter earnings decreased by 3% from a year ago when revenue increased to 5%. Diluted earnings per share for the first quarter of $0.31 was flat with the $0.31 reported for the first quarter of 2010.

Now, our earnings for the quarter were affected by a gain attributable to the SIVs on our balance sheet, which netted to an increase to earnings of approximately $6.9 million, or $0.02 per share. Now, this compares to a $17.3 million, or almost 6% per share increase to earnings due to SIVs in the first quarter of 2010.

Also during the first quarter of 2011, our non-cash asset balances under management increased by approximately $7 billion. Of that, SEI's assets under management grew by $4.6 billion during the quarter, while LSV's assets under management grew by $2.3 billion. In addition, during the first quarter, we repurchased 1.725 million shares of stock at an average price of just under $23 per share. That translates to over $39 million of stock repurchases during the quarter.

Now, sales activity in all of our markets continued to strengthen. New recurring revenue sales were good, but are still slower than we would like. Despite this, we continue to make progress in all of our markets. The investment managers segment continued to experience strong sales activity, banking also added additional clients during the quarter, both buyers of GWP and Trust 3000. And the institutional investor segment experienced a higher level of buy decisions. Finally, the advisors segment added a number of new advisors to its roles. Each of our segment heads will address the sales events in more detail.

We are continuing our investment in GWP and its operational infrastructure so critical to our future. During the first quarter we capitalized approximately $10.7 million of the Global Wealth Platform development, and amortized approximately $5.8 million of previously capitalized development.

Now, the expenses related to GWP and the delivery of GWS have been growing and will continue to trend up during 2011, and through mid-year 2012. We are increasing the speed of our GWP development as we build the functionality necessary to process US banks and advisors, as well as adding to their functionality for the UK market. Now, this will accelerate the spend on GWP which will adversely affect the near term profitability of particularly private bank as the lion's share of the expenses are being allocated to private banking. As always, we will work hard to spend as efficiently as possible across the Company.

We have recently, successfully delivered an extremely large release with, GWP release with major US infrastructure functionality. And during the next four releases, taking us through first quarter 2012, they all contain a large number of functionality enhancements. Now, these releases will complete the baseline functionality for the US, significantly enhance the UK functionality, and improve our operational competencies and scale.

Now, while our focus is always on serving our clients and managing our costs, our attention has shifted to capturing new clients. As we finished the factory necessary to serve UK and US clients in both banking and advisor segments, we are beginning to benefit from the investments we have made. And we are firm in our belief that these investments are helping our clients succeed in building a strong growing company.

Now this concludes my remarks. So, I will ask Dennis McGonigle to cover some Company financial issues and give you an update on LSV and the investment in new business segment. After that I will turn it over to the heads of other business segments. Dennis?

Thanks, Al. Good afternoon everyone. I will cover the first quarter results for the investments in new business segment and make a few comments on LSV asset management, our SIV holding and a couple of other items during the quarter.

During the first quarter of 2011, the investments in new business segment continued its focus on direct marketing and research activities directed towards the ultra high net worth investor and the further development of services in this area. During the quarter, the IMB segment incurred a loss of $2.1 million, equal to the loss during the fourth quarter of 2010. There's been no significant change in this segment, and we expect losses in this segment to continue in this range during 2011.

Regarding LSV, we continue to own approximately 42% of LSV in the first quarter. LSV contributed approximately $28.9 million in income to SEI during the quarter. This compares to approximately $26.6 million in the fourth quarter of 2010 and $24.1 million in the first quarter of 2010. The increase is due primarily to increased revenues at LSV from higher asset balances. Asset balances grew approximately $2.3 billion during the quarter from market appreciation. Cash flows at LSV were net negative by approximately $1.7 billion. Negative cash flows were the result of the net impact of client rebalancing and lost clients, offset by new client activity.

During the quarter, we generated gains totaling $6.9 million from the SIV securities we hold on our balance sheet. This gain was primarily the result of cash distributions we received during the quarter and an increase in the mark-to-market value of our remaining holding in Gryphon. As of today, our SIV holding carries a mark-to-market value of approximately $69 million. During the quarter, we sold our holding in Stanfield Victoria at the price we valued the asset on December 31, 2010. The $35 million in proceeds we received were used to pay down our debt.

As Al mentioned, we incurred increased expenses during the quarter related to the development and maintenance of the GWP platform and the continued spend on operational and system production build out. As we implement more clients, we are getting valuable experience with the platform and the delivery of operational services in the UK. While this growth has put some pressure on expenses, it is giving us opportunities to identify areas of scale, improve our overall operating model, and make improvements to the functional capability of the platform.

Expenses in these areas increased approximately $3 million as compared to the fourth quarter 2010. In addition, during the quarter, we incurred a one-time charge of approximately $1.2 million reflected in other expenses in connection with a significant increase in regulatory fees in the UK.

Finally, as mentioned earlier, during the quarter, we made a $35 million payment on our outstanding debt. Our outstanding debt is $60 million. This is down from an original debt level of $254 million just under two years ago. I will now take any questions you have.

(Operator Instructions) We'll go to Aaron Teitelbaum.

Just really quick, I know Wayne has mentioned it in the past for his segment, but given the asset growth in the quarter, revenue growth seemed to lag. I was just curious if there was any seasonality, potentially a day count issue or other timing aspects that maybe led that astray?

Well, there's certainly a day count issue in businesses where we, we earn revenues on average daily net assets. So, in Wayne's business, for example, that would apply and also in banking in some respects.

The other thing to keep in mind is that we get paid on average assets, generally or in institutional we get paid on ending month end assets. So, how the market moves during the quarter has an impact. So, this quarter, by kind of remember it correctly, a good start to the quarter and then the market started to lag, and then the market came back. So, ending assets are higher than average assets where during the quarter it certainly bodes well for us going into the second quarter.

Great. That's helpful. And actually, just one other housekeeping item for my model. Can you possibly give me the ballpark LSV revenue number for the quarter?

I can if you give me one second. Can I get back to you on that, Aaron? I will look it up.

Great. Thanks for taking my questions.

(Operator Instructions) We will go to Tom McCrohan with Janney Capital.

Just to follow up on what Aaron was asking you, I want to make sure I get that right. So, the end of period assets, given the levels they are at, that's a good leading indicator for next quarter's revenue for institutional clients? Is that how I should think about it?

Really across all of our asset management businesses, that if, if assets -- ending assets are up, that's a good indicator going into the next quarter. Particularly if they are above what we averaged in the prior quarter, which is the case in this particular quarter. Does that make sense?

But you price, you price customers pay based on the average during quarter or the end of period asset mix, right?

In the institutional business, it's a four rolling month end balances the average of that, the prior four months, and then Wayne's -- the advisor business, the banking business, it's average daily assets.

Okay.

Every day, the rolling average every day.

All right. So, there's -- if I'm hearing you right, basically what you are saying, it's better to start the quarter at a high level than a low level, that's pretty much --

Always.

And then the increase of regulatory fees, can you just give a little color on that? Is that a new run rate or a one-time charge and what's it related to?

Right now I consider it more of a one-time charge. It was in the UK, almost out of the blue we got -- as did everybody in the industry got a -- basically an invoice from the regulators to pay essentially a new tax, it's almost like FDIC insurance, that's the best way to parallel it to things we are familiar with here. Now there's a lot of complaining about that, as you can imagine and we'll see how it plays out going forward, but I view it more as a one-time event.

In the eyes regulators, as it pertains to this particular tax, are you viewed as a bank?

No, investment manager.

Investment manager. Got it. Thanks.

We are paying -- the industry is paying for, I guess, issues that occurred with other firms during the meltdown.

Yes.

And the question on LSV's revenues, revenues in the quarter were just over $79 million.

And we have no further questions at this time.

Thank you, Dennis. Now I'm going to turn it over to Joe Ujobai to discuss our private banking segment. Joe?

Great, thanks, Al. Today I will give you an update on our activity and a review of the financials for the private banking segment.

We remain focused on three growth opportunities. First, continuing to scale global losses in the UK based on segment expansion. We are doing this by two ways, number one, selling new clients. During the quarter, we signed two new clients, Premier Asset Management and Fusion Wealth. Premier is a growing private client investment manager, providing discretionary services to IFAs. Premier will be a traditional data conversion client, and will implement this summer. Fusion, a business transformation client, supports over 180 independent investment advisors, including the best practiced network of 75 chartered financial planners. We will launch our relationship with Fusion later this year.

Sales and marketing activity is strong as we continue to close and grow the pipeline identified in 2010. As a general comment, we are engaged with larger firms and more traditional conversion opportunities.

Secondly, installing the backlog and transferring assets to GWP. During the quarter we launched both Best Invest and True Potential for business. These are two significant opportunities for us to grow in the UK independent wealth advisor segment. We now have eight clients on the platform with two additional clients in the signed backlog.

Second, in the US, as we prepare for the availability of GWP, we are focused on capturing market share, and recontracting current clients. Areas of US revenue growth include selling community banks and trust companies, our GWS solution currently enabled by Trust 3000, as well as increased sales activity in the regional bank segment. During the quarter, we signed three new community bank clients. As usual, we are also involved in recontracting current clients. During the first quarter, we recontracted four clients for over $5 million. Recontracting rates, or net downs, remain improved to previous years.

And finally, we continue to support and grow our global asset management distribution partnerships. In the first quarter, we saw some renewed interest from individual investors. Ending balances were up compared to the fourth quarter at $14.8 billion, with approximately $200 million in net new cash flow.

We saw positive sales event growth across all of our solutions, including investment processing, asset management, and transaction services. During the first quarter, we sold net recurring events of $4.4 million, and non-recurring events of $1.3 million. As mentioned during recent calls, quarter to quarter sales event success will vary as we regain momentum in this business segment.

As a financial update, I will focus my comments on a comparison in the fourth quarter 2010, as well as remind you of some of the challenges we face in growing our near term revenue and profitability. For the quarter, revenue of $86.7 million was up slightly compared to the prior quarter revenue of $86 million. We are working hard to replace the previously announced lost revenue realized over the first half of 2010, and also working hard to realize the new sales events announced in 2010. Profit for the quarter was approximately $4.3 million.

We continue to manage expense as we transition our business to the Global World Platform. In this segment, expenses associated with the continued launch of GWP increased by nearly $3 million, primarily for continued development and infrastructure costs. Additional investment is generally based on growing our market opportunity and scaling the operation. As Al mentioned, during the first quarter we launched -- released 6.2 of GWP. This is the first of several releases focused on our US business. Other increased expenses included additional hardware as we convert more clients, and other technology and operations investments to increase availability in scale. Long term as we drive scale, we would expect our operational costs to decrease per client.

In summary, we are focused on signing more clients in the UK, converting assets to GWP, and building market share in the US. Current financial results and short to midterm challenges aside, I'm encouraged by our signed deals and sales activity and our ability to help our clients significantly grow their businesses. Our win/win GWS financial model assures that as our clients grow, we will too. At this point, I would be happy to entertain any questions.

(Operator instructions) We will go to Aaron Teitelbaum with KBW.

I'm sorry, I think you mentioned it before, but the net cash flow number, what was that again? I missed it as I was scribbling.

You mean the net new sales number?

No, there was -- well, when you described the asset growth in the quarter, I thought you might have given some type of flow metric maybe.

Oh, yes, well, we -- we got about -- there was obviously market appreciation, but we also got about $200 million of net new cash flow. So, net of, of any other -- any redemptions.

And maybe just taking a step back, obviously asset growth was quite strong and it seems like you guys are gaining a little bit of momentum, is there any way you could maybe speak to -- I know the initiative to broaden the distribution of SEI products and if there's any way to even quantify those platforms that you might have brought on to, to sell SEI products in the last year or so, that, that's actually gaining traction?

Well, some of the -- last year we announced the distribution program with Edward Jones in Canada, and that launched towards this latter half of the second quarter, I'm sorry, the third quarter of last year. We have high expectations for that relationship. In the UK, we signed up another set of distributors, co-fund which is a large, what they would call a platform in the marketplace, like a mutual fund supermarket. We are beginning to see some positive momentum in that relationship.

We also signed up a number of smaller supermarkets or platforms in the UK, again, in the first quarter we started to see activity there. And we've also seen positive cash flow, from some of our big distributors like HSBC private bank, where we really experienced up through the second -- or literally the first half of the second quarter of last year, net negative cash flow from most of these distributors. We started it to see that go flat in the second -- I'm sorry, the third and the fourth quarter of last year and the first quarter now we have started to see most of these distribution relationships go positive. Not all of them, but most of these distribution relationships go net positive from the cash flow perspective.

Great. That's really helpful.

So, we're far from where we were pre the crisis, but we are starting to see the tide turn in a positive direction.

Great. And maybe just one more before I jump back in the queue. I know it's challenging given all the investment spend forthcoming. Is this any way to frame the margin expectations over the rest of the year, selfishly from a modeling perspective as we have seen it bounce around the last several quarters or should we really expect more of the same?

I think it will continue to bounce. We are working hard to manage our expenses, particularly in our legacy business that's associated with Trust 3000, although we are obviously continuing to invest as we bring more clients up. We are working hard to tightly control those numbers and on the, on the GWP side as Al and Dennis mentioned, it's important for us to get launched, to have the functionality and the infrastructure ready for the US launch, and be able to keep growing our opportunity in the UK. So, it's not as easy to predict as I think any of us would like, but we have strong beliefs that we are making the right investments so that we can start to see this margin head in a positive direction and get back to the kinds of numbers we have been used to in this segment.

Thanks, Joe.

We will go to Jeff Hopson with Stifel.

Okay. Thanks. Joe, a couple of questions in terms of the pipeline, I know this is hard, but any change in the tone and/or nature of the discussions? And then in terms of the expenses, it seems like you have accelerated the spending to get the platform ready. Does that mean at some point next year that the expenses, some of that drops off?

Okay. So, let me talk about the pipeline first, and then I'll talk about expenses. From a pipeline perspective, we talked last summer at the investor conference of about $40 million, and so things change obviously. That's almost -- that's nine months ago. Some of these deals we closed like Best Invest and True Potential and some of the others that I announced today. Some firms have made no decision. They decided to make no decision. A couple of firms have looked at alternative solutions and decided on alternative solutions, and some firms are still in the pipeline, because the sales cycle is long.

I would say that the pipeline continues to grow. So, it's at least $40 million, if not slightly more than that. We add more names to the pipeline as we create more momentum in the marketplace or as we are viewed as a successful solution in the marketplace, with the eight clients we have installed and the two additional that we have recently signed.

I think a couple of characteristics that I mentioned earlier, we are seeing some larger firms in the pipeline. So, we have been mostly focused on closing these independent wealth advisors that have books of business anywhere from $1 billion to $4 billion or $5 billion of assets. We are beginning to see some larger firms. We are beginning to see firms in other segments, so we call, for example, private client investment managers that might have more of portfolio management rather than a distribution strategy towards the market. We are engaged with some of the larger banks, again, with segments, or business lines within some of the larger banks. So, we are seeing, I think, some good progress, in the size of the pipeline or the individual prospects in the pipeline.

We are also seeing some more traditional asset conversion, or asset conversion types of clients that will look more like Trust 3000, where they might be running their business on a single platform or with a single custodian that would be an -- sort of a day one conversion versus an over time business transformation. So, I would say the pipeline is strengthening, with larger accounts and with, with some more conversion day one traditional conversion opportunities.

On the expense side, we are really building for scale. When I look at what we spent extra money on in the firs quarter are things like more technology to make the response time of the platform become faster as we add more clients, or more technology to make the platform more redundant in the cases of, in the case of potential outages. And so we are really investing in, what I would say, core infrastructure so we can really grow this thing, add a lot more clients and have a very reliable and, and fairly robust platform as we build the business beyond 100,000 plus accounts we have today. So, these are, I think, deep infrastructure costs that will drive scale for us.

At some point, we would expect, and Dennis mentioned this, we are operating this platform every day and we are getting a lot more comfortable with how it works and we are making it a lot for straight through. So, our ability to understand what it's going to take to drive this business and grow it is becoming more and more obvious every day as we work with it and as our clients work with it. Yes, at some point, we will start to see the benefit of these scale investments.

Okay. Great. Thank you.

We will go to Glenn Greene with Oppenheimer.

And I guess this is related to the couple prior questions, but I just -- I'm trying to get a sense for your -- it sounds to me, and in some ways this is good, you are sort of accelerating investments and we have been hearing this for a while, is the incremental investments or the accelerated investments sort of a change in mentality meaning there is more demand or you are sort of seeing things in the market better than your expectation? I'm trying to get a sense of what sort of prompted the accelerated investments.

Well, one is we want to get to the US and we have been talking about that for sometime now, but we really think it's important and we have a very focused program on getting to the US. So, we are, for example, bringing up a version of the platform, what we call an instance of the platform that would be totally focused on the US opportunity and the US markets. So, that's happening this year.

We are building additional functionality for our clients in the UK, as they are growing their businesses, we talked before about initially we supported a discretionary -- we were mostly focused on discretionary books of business, where the intermediary had control and discretion of the accounts. Now we are supporting both discretionary advisory and to a certain extent some self-directed trading activities that are, are powered by some of the front end clients that built for us. The answer is yes, we've seen additional opportunity.

Number two, we have a platform up and running and we understand the power of it and want to make sure that we can be comfortable to go out there and sell a lot more clients. And, it's hard to predict the actual spending until you actually get into this and the platform is up and running, and the clients are utilizing it and we are, for example, clients trade a lot more than they expected. So, we are making sure that -- most of our, particularly the more current clients, as we've evolved the pricing structure, pay us both an asset based fee and transaction fee based on trading. We are doing a lot more trading than we expected. I think that's good news. That will drive more revenue for us, but it requires us to have, in some cases, more infrastructure. That's sort of one example.

So, we are -- the more success we have, the more optimistic we are about our future, and we really want to make sure that this thing is really bedded down and can handle the growth that we would expect to achieve in the coming years.

The $40 million plus pipeline that you alluded to, is that just the UK at this point or does that include the US as well?

That's really just the UK at this point. As I mentioned, the pipeline evolves and the good news is we are closing a number of these deals, but we replenish the ones we are closing with new ones that I would say, it's at least $40 million and, we feel pretty strong about it, just it takes a long time to close some of these deals.

And then, maybe Dennis can answer this or Joe, either way, but I'm trying, at high level, trying to understand what kind of revenue base you need to sort of start to see the scale benefits. It's sort of like --

Certainly more than we have now. We talked last year about $20 million of GWP revenue. We are working hard to make that number bigger than that this year. When you look at all the money we spent and as we continue to amortize that capitalization and build out the operation, it's certainly more than the 10 clients we have today. But --

Do you need to get to $100 million a quarter to start seeing those scale benefits? I'm just trying to --

No, it's not that kind of number. It's certainly more than $20 million a year, but it's not $100 million a quarter.

But including your all-in business, because you are -- I'm thinking relative to your $87 million quarterly run rate.

I don't think it's that high. One of the things we do plan to talk about at the investor conference is a little bit more around how we see this playing out over the next couple of years from an investment and profitability standpoint. We will probably get into that a little deeper in June.

Sorry, one more. The $3 million incremental investment this quarter, is that sort of a reasonable rate or sustainable rate we should think about going forward or should it even grow from there?

It may even grow from there. Particularly as we -- if we are successful in acquiring some of these larger clients and we want to, to drive more scale.

Okay. Thanks.

And our next question comes from Tom McCrohan with Janney Capital.

Joe, the $20 million of revenue that you expect to realize in 2011, from the 10 or so clients in the UK, is there anything to suggest that the next 10 clients you add will have a higher run rate of revenue because maybe you, I don't know, priced the deals differently, just to get the platform scaled up?

A lot of it depends on the side of the client. So, as we mentioned in the past, Towry is a fairly large client for us. They are already one of the top 10 clients within the worldwide banking segment. So, some of it will depend on the size of the clients. Some of it will depend on how the financial model has evolved. I mentioned earlier around -- we've added some transaction-based revenue as a part of the financial models.

So, every client is not the same. Again, Towry is a fairly significant client, but we do have clients from a range of $1 billion of assets under management to $5 billion plus. So, I think it's highly dependent upon the size of the client, the number of accounts, and the amounts sort of underlying activity they have. We don't have enough clients to sort of predict that, I would say at this point.

And Joe, for the existing clients in the UK that are managing assets under your platform, is it -- as far as share of wallet, is it all their client assets or are they getting up to speed and getting used to the platform and then over time you have the share of wallet opportunity with the existing UK clients?

I would say that every client we have signed, the goal was to create a single infrastructure for them to run their wealth management business, and Towry was an example or even HSBC was an example where they generally had their assets consolidated in a single place and we took it from one custodian relationship to another, or from one processing infrastructure to another. That's very traditional to our business, say, in the US when we do a Trust 3000 conversion.

We talked about a number of other clients, though, that have their assets on multiple platforms or multiple, multiple custodians and in some cases the client has discretion over those assets, meaning the intermediary has discretion of those assets, and generally when they have discretion, we can move those fairly easily on to GWP. In most cases, though the bulk of their assets are on a number of third party infrastructures and in some cases, the client, meaning the intermediary, has to go out and get approval from the end client, the end investor, to move those assets.

The goal in every one of our clients is to move to a single infrastructure for them to manage their business so that they can grow and see the entire relationship they have with the client. That's what's taking time is that we are moving over books of business, not a whole client once, but books of business, or the client is going out to get the approval from their end clients to move from one custodian to us. So, the goal is always with these clients 100% of the wallet share of the intermediary. That's taking time. That's what we call asset transition and we are building the tools and the infrastructure to try to facilitate and make that happen faster. We will see less revenue day one, but we believe we have a built-in growth plan with these clients as we help them convert the business from these third parties on to GWP.

So, I guess I was looking for you to maybe size that for us. That's very helpful. In terms of total assets managed by clients and today, x percent is on the platform.

If you look at what we call a business transition, we might start day one with 10% to 20% assets coming to the platform and that actually may be closer to 10% than 20%. And then we have a huge opportunity to move most of their business, which we think would take anywhere from 3 to 5 years to get the entire book moved over.

And you gave us the number of accounts on the platform, over 100,000, how about the number of assets?

120. It's about 120,000 and it's about -- it's somewhere between $14 billion and $15 billion of assets.

Thank you.

We have no further questions at this time.

Thank you, Joe. And our next segment is investment advisors and Wayne Withrow will cover this segment. Wayne?

Thanks, Al. During the first quarter we improved our profits and margins coinciding with the continued improvement in the financial markets. Quarter end assets under management increased from $31.1 billion at December 31, to $31.5 billion at March 31, 2011. This increase was primarily due to market appreciation, and slightly positive net cash flow. Cash receipts for the quarter were just over $1.4 billion, and disbursements were just under $1.4 billion. Resulting in net positive cash flow of approximately $40 million.

While net flows have not returned to desirable levels, it is encouraging that they are trending in the right direction. In January, we had net negative receipts. In February, they were neutral, and in March, they were net positive. It is also significant that gross receipts in the first quarter were our strongest in over two years.

Revenues for the quarter were essentially flat from the fourth quarter, but expense management allowed to us improve our profits to $21 million and our margins to 43.8%.

During 2011, we continue to prepare for the beta rollout of the Global Wealth Platform, while at the same time working hard to improve cash flow and to recruit new advisors. As I previously mentioned, growth receipts during the first quarter were our highest in two years. The 115 new advisors recruited during the first quarter were also the highest quarterly number in over two years. Helping to drive both cash flow and new advisor recruiting are the relationships we began building with the broker dealer community at the beginning of 2010. I'm happy to report that we have now signed a joint marketing agreement with the advisor group, formerly known as the AIG broker dealer network. One of the top three or four broker dealers in the United States. We began working together with the advisory group on April 1.

In summary, our revenues and profits improved significantly during the first quarter, driven by the general improvements in the financial markets. Cash flow, while not back to historical levels, is improving and momentum is building. I welcome any questions you may now have.

(Operator Instructions) We will go to Aaron Teitelbaum with KBW.

Any chance you can provide an update through April, if the cash flow trend has continued?

April is positive so far.

Great. And just maybe very quickly hitting back on a question I asked to Dennis, the C rate dipped a bit in the quarter, was that also sort of a day count thing?

Yes, -- can you repeat the question for me again?

The revenue yield on assets dipped modestly based on what I'm calculating here. I was just curious if that was really a day count thing. I'm calculating 61.5 basis points. If you use the end to end average.

Yes, I think our average basis points are actually up, but there were -- there are two less days in the first quarter compared to the fourth quarter.

Right. Okay.

And we recognize revenue on a daily basis in this segment.

Got you. All right. Thanks. That's very helpful.

We will go to Jeff Hopson with Stifel.

Okay. Thanks. Wayne, could you, in terms of the advisor group remind us of kind of the strategic appeal here and then any financial effects?

I'm sorry. AIG. As I said, It's a very large broker dealer network. And they have -- want to really -- they run a pretty tight ship there. I think it gives us access to their network of advisors, but more than just giving us access, it gives us sort of their seal of approval as we go into their advisors. So, I think it's a significant relationship for us. Not only gives us access, but it gives us, as I mentioned, their endorsement and also helps us understand their advisors so we can perhaps target very productive advisors.

Okay. Any potential financial effect over time?

Well, I guess what I would say is prior to 2009, we did not receive very many new advisors as a result of referrals from broker dealers. In 2010, as a result of our broker dealer program, broker dealers became our number one source of qualified leads for new advisors and now having signed a relationship with one of the top three or four independent broker dealers, I think it can only continue to contribute to that type of success.

Great. Thank you.

We'll go to Glenn Greene with Oppenheimer.

Thanks. Wayne, just on the operating profitability, you had a nice ramp in margins on a pretty modest revenue growth and it sounds like if anything flows are getting better and you obviously ended the out set with higher ending assets, just trying to get a sense for the projection -- the prospects for margin outlook, is this sort of a sustainable level and any reason there shouldn't be a nice incremental margin lift going forward for revenue ramps?

I guess the way to answer that question is this business, I think perhaps more so than a lot of our other businesses is very sensitive to asset balances and the margins as you see are extremely leveraged. Where we are today is not where we have been on the up side and not where we have been on the down side. I think as markets improve and assets balance and we get the continued scale, we expect to see that scale in our margins.

Okay. That's kind of what I was looking for, to make sure there's no unusual expenses to be thinking about as it relates to more aggressive launch of GWP and what not or some of these broker relationships.

Yes, I think that there is expense that we will incur as all the broker dealer relationships. I think a lot of GWP expense is baked in the numbers.

Okay. Perfect. Thanks.

And we have no further questions at this time.

Thank you, Wayne. Our next segment is the institutional investor segment, and I will turn it over to Ed Loughlin to discuss the segment. Ed?

Thanks, Al. Good afternoon, everyone. I'm going to start with the financials for the quarter, and then discuss sales activity.

Revenues of $53 million for the first quarter declined slightly, compared to the fourth quarter 2010 due to decrease in non-recurring revenue quarter to quarter. Quarterly profits of $26 million increased 2% versus the fourth quarter of 2010. Margins of 49% increased 1.5% compared to the prior quarter, and continued to be sensitive to market volatility. Asset balances increased by $2 billion during the quarter, totaling $55 billion at the end of the quarter. Net new clients funded during the quarter were $680 million in assets. Our backlog of committed but unfunded assets at quarter end were $468 million.

Sales activity increased during the first quarter with $1.4 billion in new globally diversified client sales. Institutional prospects continued to show a willingness to accept a first call introduction to outsourcing and as a result, the pipeline continues to grow. As we have discussed previously, an uncertain business environment and more volatile capital markets have lengthened the sales cycle. We also have seen numerous entrance to the outsourcing market over the last several years which extends the time required to perform due diligence for our institutional prospects.

SEI has a long track record servicing clients as a fiduciary manager and has consistently invested to enhance our solution, so we are well positioned to differentiate our offering in a competitive market environment, and we are optimistic about the growth opportunities for the segment. Thank you very much, and I'm happy to entertain any questions that you may have.

(Operator Instructions) We will go to Aaron Teitelbaum with KBW.

Just one quick question, is there any way you can quantify the decline in non-recurring revenue sequentially?

It's pretty much about $0.5 million, which would be the difference between the two, fourth quarter and first quarter.

Great. Thanks.

We have no further questions at this time.

Thank, Ed. Our final segment today is investment managers and I will turn it over to Steve Meyer to discuss this segment. Steve?

Thanks, Al. Good afternoon, everyone. I will briefly cover the financials of segment for the first quarter of 2011, including our new sales and then provide a brief update on the market.

For the first quarter of 2011, revenues for the segment totaled $43.4 million, which was just shy of $1 million or 2% higher than fourth quarter of 2010. Also in a year-over-year basis, this represents an increase of $5.8 million, or 15.5% over our revenues for the first quarter of 2010. Our quarterly profit for the segment of $15.4 million was 2.6% higher than our profit for the fourth quarter of 2010, and also $2.4 million or 18.3% higher than our profit for the first quarter of 2010. The quarter over quarter increase in profit was mainly attributable to the increase in revenue, offset by an increase in operating costs and investments in new business.

Third party asset balances at the end of the first quarter of 2011 were $238.3 billion, an increase of approximately $5.2 billion or 2.2% higher as compared to our asset balances at the end of the fourth quarter of 2010. This quarter over quarter increase in our asset balances was primarily due to market appreciation of $2.4 billion, and net client funding of $2.8 billion.

During the first quarter of 2011, the segment had net new business sales totaling $6.8 million in annualized revenue, the strongest first quarter we had in terms of new business events to date. We view this as very positive as the first quarter sales activity tends to be slower due to end-of-the-year processes at investment managers, such as year-end financial reporting and audits. As usual, these sales will take time to matriculate into our financials as conversion time frames in general have lengthened. In addition to our new sales, we have also had a strong client recontracting quarter with close to $13 million of annualized revenue being recontracted with existing clients.

Looking at the market, I believe 2011 will be much like 2010. While we see market opportunity and activity, we still see relatively cautious optimism and lengthened decision time frames being the norm. However, despite this tempered environment, we do believe there are opportunities for growth and expansion, and I believe we are well positioned to continue to execute on those opportunities. Thank you for your time and I will now turn it over for any questions you have.

(Operator Instructions) We will go to Glenn Greene with Oppenheimer.

Just a quick clarification. The Allianz win that you put out a press release on I think was converted right at the tail end of the fourth quarter. I was confused as to when it actually hit the asset levels, whether it was fourth quarter, first quarter, and even irregardless of that, I'm confused that the asset level is not higher given the order of magnitude given that book of business.

Well, a couple of things, Glenn. First, it did partially fund towards the end of the fourth quarter. The remainder came on during the first quarter. But this win was in our separately managed account business, which is based on accounts not assets. So, while those assets are large in those separate accounts, we don't get an asset fee on them. We get an account fee and those assets are not included in our asset numbers that we report here.

Very helpful. That's all I had.

Okay.

(Operator Instructions) We have no further questions at this time. Please continue.

Thank you, Steve. I would now like to turn it over to Mark Warner to give you a few Company wide statistics. Mark?

Thanks, Al. Good afternoon, everyone. I have some additional corporate information about this quarter. First quarter 2011 cash flow from operations were $58.3 million, or $0.31 per share. First quarter 2011 free cash flow was $5.2 million, or $0.03 per share and this figure reflects debt repayment of $35 million in the first quarter. First quarter 2011 capital expenditures, excluding capitalized software, were $7.4 million. Capital expenditures excluding the capitalized software for the remainder of 2011 are expected to be approximately $15 million.

The tax rate for first quarter 2011 was 37.1%. This compares with a tax rate of 34.7% for fourth quarter 2010, and 37.9% in Q1 2010. The tax rate in Q4 2010 reflects the full year effect of the reinstatement of the R&D tax credit. We expect the tax rate for this year to be approximately 37%. Accounts payable balance at March 31, 2011 was $2.7 million.

We would like to remind you that many comments are forward-looking statements and are based upon assumptions that involve risks and uncertainties that the financial information presented in our release and on this call is unaudited. Future revenues and income could differ from expected results. We have no obligation to publicly update or correct any statements herein as a result of future developments. You should refer to our periodic SEC filings for a description of various risks and uncertainties that could affect our future financial results. That includes my remarks. Please feel free to ask any questions, otherwise I will turn it back to you, Al.

(Operator Instructions) We will go to Glenn Greene with Oppenheimer.

Dennis, just a quick clarification, the $1.2 million in regulatory charge, is that in the corporate line or in Joe's business?

It was in other expense, so G&A.

Okay. And then incentive accruals for the quarter, would you characterize them as sort of a normal run rate or how would you characterize that?

I guess I would characterize it slightly higher than fourth quarter last year.

Okay.

And I guess on par a little bit higher than fourth quarter.

Okay. Great. Thanks.

We'll go to Tom McCrohan with Janney Capital.

Just a follow up on LSV. In the 10-K you published the amount of -- I don't know what the right term is, the cash you actually get from the investment LSV. Do you have that for the quarter?

Yes, the way -- basically distributions from LSV to the partners occur after the quarter ends. And essentially they are consistent with earnings.

We have no further questions at this time.

Thank you, Mark. So, ladies and gentlemen, despite some of the external conditions we have been faced with recently, the strength of our Company has allowed us to stay the course on building new sources of growth. Now, when we look forward, we are optimistic that conditions are improving, and we have made important strides in our key investments. And while we have a lot more to do, we definitely feel that our efforts are beginning to be rewarded.

Before you go, our annual invest or day will be held on June 1 this year, with a dinner the night before on May 31. So, please save the date. Invitations have been sent out. I will give you one more chance to ask any question you might have and then we'll say good afternoon.

(Operator Instructions) There are no further questions.

Thank you, and good afternoon, everybody and thank you for your attention.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.